Despite word last week that European lawmakers were nearing a compromise on the European Union’s controversial hedge fund rules, their adoption remains no sure thing, the Spanish government warned.

The EU’s member nations—which also must give their assent to the proposed regulations—remain at loggerheads on several hot-button issues, according to Spain, which holds the rotating presidency of the 27-member bloc. And at a meeting last week, representatives of those countries gave voice to those differences, setting out divided opinions on how far the rules should go, who should be allowed to serve as a depositary for alternative investments funds, and what to do about funds based outside of the EU.

On the first issue, the Spanish statement indicates that “a large number of delegations” are comfortable with limiting the new rules to funds with more than €100 million in assets—or €500 million if they forgo leverage. But that means that some European countries are less comfortable with exempting any funds.

There is no more unanimity on the question of depositaries, especially among countries without their own depositary institutions.

The last issue—that of foreign funds—is perhaps the most contentious. As on the question of exemption smaller funds, Spain said that its proposal to keep out funds whose home regulators are not as strict as the EU is “acceptable to a large number” of EU members. But “a group of delegations is strongly against this, arguing that the approach is protectionist.”

Spain did not say which countries stood where on which issues, but on the issue of foreign funds, the British are among the strongest critics of the “protectionist” approach. The U.K. has been the strongest voice in favor of weakening the proposed rules, which would impose strict new reporting and custody requirements, as well as potential leverage limits.

Spain also said that three other issues provoked disagreement, but only from one country or a small number of countries. Those problem areas were pay, valuations and reporting requirements.

Editor's Note

In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…